California Tax Workshop | Taxpayers Rights Advocates Office 1 - PowerPoint PPT Presentation

California Tax Workshop | Taxpayers’ Rights Advocate’s Office 1

California Tax Workshop for Nonresident Scholars and Researchers Marc Narlesky March/April 2020 California Tax Workshop | Taxpayers’ Rights Advocate’s Office 2

Program Agenda • California Residency Laws • Items taxed by California • Taxation of fellowships, stipends and scholarships • State & Federal Differences • Calculation of California tax • Example: Prepare a Tax Return California Tax Workshop | Taxpayers’ Rights Advocate’s Office 3

Do I Have to File? • California has a minimum filing requirement. See Do I have to File handout. • If you’ve had money withheld, you must file to receive a refund. California Tax Workshop | Taxpayers’ Rights Advocate’s Office 4

Who is a Resident? Definition of Resident: 1. Every person who is: a. In this state for other than a temporary or transitory purpose or b. Domiciled in CA and who is outside for a temporary or transitory purpose Definition of Nonresident: 1. Every person other than a resident California Tax Workshop | Taxpayers’ Rights Advocate’s Office 5

What Is Temporary? A person is in California for a temporary and transitory purpose if he/she is – Passing through the state – Here for a brief rest – Here for a vacation – Here for short period to complete a particular transaction, contract etc. California Tax Workshop | Taxpayers’ Rights Advocate’s Office 6

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Where is your Domicile? • The location of your permanent home • The place where you intend to return to whenever absent California Tax Workshop | Taxpayers’ Rights Advocate’s Office 8

Presumption of Residency • Every individual who spends in the aggregate more than nine months of the taxable year within this state shall be presumed to be a resident. • The presumption may be overcome by satisfactory evidence that the individual is in the state for a temporary or transitory purpose. California Tax Workshop | Taxpayers’ Rights Advocate’s Office 9

Presumption of Residency • Case law indicates that academic assignments are considered “temporary or transitory.” • California residents who took academic assignments out of California did not lose their California resident status. • Therefore, for consistency, foreign scholars will not be considered residents solely because of the presumption of residency. California Tax Workshop | Taxpayers’ Rights Advocate’s Office 10

What are your Connections? Factors to consider: • Amount of time spent • Intention to remain in the US • Location of spouse and children • Location of principal residence • Location driver’s license was issued, vehicles registered • Location of real property and investments • Permanence of work assignment • Location of social ties California Tax Workshop | Taxpayers’ Rights Advocate’s Office 11

Foreign Scholars/Researchers • If you are not a student or pursuing a degree, you will likely appear to meet the presumption of residency. The presumption can be overcome by showing that your stay is temporary or transitory. • Residents file a form 540 or 540 2EZ. • Nonresidents and part-year residents file a 540 NR. California Tax Workshop | Taxpayers’ Rights Advocate’s Office 12

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Why Is Residency Important? Residency affects the way a person is taxed: • A California resident is taxed on all income from everywhere • A nonresident is taxed on income derived from sources within California California Tax Workshop | Taxpayers’ Rights Advocate’s Office 14

Source Income Pertains to the Place of Origin • The source of “tangible” income is where it is earned or located • The source of “intangible” income is the state (or country) where the recipient is a resident California Tax Workshop | Taxpayers’ Rights Advocate’s Office 15

Sourcing of Income Tangible Income: Has a California Source if: Wages, tips, commissions, Work was performed in California – regardless fellowships of the location of the employer, where the payment was issued, or the individual’s residence upon the receipt of the payment Trade or business, property Activity carried on in California or property sales located in California Intangible Income: Has a California Source if: Interest and dividends Nonresident: Never California resident: Always Sales of stocks and bonds Nonresident: Never California resident: Always California Tax Workshop | Taxpayers’ Rights Advocate’s Office 16

Fellowships, Stipends and Scholarships California Source Income: Wages/Salary Payments, including Fellowships, teaching/research assistantships • Amounts received from foreign employers • Fellowship, Stipend, and Scholarships Amounts not used for payment of tuition and fees or • books, supplies and equipment required for courses of instruction California Tax Workshop | Taxpayers’ Rights Advocate’s Office 17

California & Federal Differences • California has no tax treaties with other countries • No foreign tax credit • Source of income has different meaning • Worldwide income is required to be reported for California California Tax Workshop | Taxpayers’ Rights Advocate’s Office 18

Ways to convert currency Convert on the day the money was earned. 1. Convert using an average for the entire 2. year. Convert on the last day of the year, 3. December 31. Which ever method is used, it must be consistently applied. For historical currency exchange rates go to: https://www.oanda.com California Tax Workshop | Taxpayers’ Rights Advocate’s Office 19

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California Tax Forms • Resident Form 540 requires all income from worldwide sources to be reported and computes the tax rate on all the income. • Nonresident Form 540 NR reflects worldwide income but applies tax rate to only California sourced income. California Tax Workshop | Taxpayers’ Rights Advocate’s Office 21

California Forms • Nonresidents – 540NR • Residents – 540 – 540 2EZ California Tax Workshop | Taxpayers’ Rights Advocate’s Office 22

You Cannot Use the 540 2EZ If You Have: • Filing status is married/RDP filing separately. • Income excluded by treaty • Income received from another country during 2019 • Taxable scholarships, fellowships, or stipends not on a W-2 California Tax Workshop | Taxpayers’ Rights Advocate’s Office 23

Forms we will use CA Form 540NR & Schedule CA (540NR) California Tax Workshop | Taxpayers’ Rights Advocate’s Office 24

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As you begin your California return: Complete your federal return prior to starting your state return. 1. Determine if you are a resident or a nonresident for California 2. purposes. You can be a nonresident alien for federal purposes and still be a 3. California resident. Use the same filing status as you did on your federal return. 4. If you are a nonresident, determine your California source income. 5. California Tax Workshop | Taxpayers’ Rights Advocate’s Office 26

Step by Step Example • Example for a part- year resident using form 540NR. Are You Ready? California Tax Workshop | Taxpayers’ Rights Advocate’s Office 27

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